With Blockchain, Where There’s Smoke, There’s Usually More Smoke – CoinDesk

Jonathan Wolinsky is senior managing director and chief scientist of Genesis Project, the company behind the private blockchain platform OpenBlock.In this opinion piece, Wolinsky – and colleague Robert Wolinsky – focus on the blockchain technology industry’s inability to deliver on its promise: the bone crushing, market flattening creative destruction of the Bitcoin-style blockchain innovation.In recent weeks, hot topics in the banking and blockchain technology sector have been the heist of $81 million from Bangladesh’s central bank facilitated by hackers manipulating the SWIFT (Society for Worldwide Interbank Financial Telecommunications) messaging platform, and the oft-repeated buzzwords “blockchain” and “distributed ledger” as the “white knight” technology duo that’s going to correct all that ails SWIFT.SWIFT is a global interbank messaging service connecting 11,000 financial institutions in more than 200 countries and territories around the world. SWIFT handles 25 million transfer messages worth approximately $5 trillion daily. However, because of SWIFT’s importance to the global financial system, SWIFT’s activities do not happen in a vacuum. Plainly said, the SWIFT hacking problem is a global banking industry problem.Seeking to address this and other questions, since 2014, SWIFT, along with many major firms in the securities and banking industries, have banded together through consortia and collaborations to investigate how to reduce or eliminate mutualized costs, and improve security and reliability. These companies are embracing distributed ledger blockchain technology initiatives as a new means to long- term sustainability in an increasingly digital challenged marketplace.Of course, there’s nothing new about technology collaborations, even amongst competitors. So, let’s chalk that up to just good public relations. However, despite the collaboration, the what’s “new” is the increasing clarity that saying the word “blockchain” may be more about selling the “old” than delivering the “new”.Recently, I collaborated with colleagues at our firm to pen a contrarian viewpoint entitled “Can Trust-based Private Blockchains Be Trusted?”. Our call-out was simple: permissioned or trust-based blockchains without the proof-of-work protocol provably do not deliver historical record immutability and are merely distributed databases impersonating blockchain technology. And since the article’s debut, many blockchain development initiatives including the R3CEV group have fessed-up: they are not building blockchains at all. Investors take note.So what’s going on here?A little history is in order. Since the inception of Bitcoin there’s been two distinct evolutionary or generational steps. First, there was Bitcoin, the tour de force of market flattening and all sorts of disruption. In the abstract, Bitcoin was a fresh idea with tremendous promise. Nonetheless, enterprise- class users had problems using it right off the bat. And rightfully so.Think about it. Having to get involved with or entangled by the openness of a public blockchain, the Bitcoin brand and its checkered history, internal convulsions, software rigidities and forks, regulatory murkiness, and having to rely on Bitcoin in perpetuity is a really big ask, especially for the folks in the C-suite. The reality was obvious, absent some miraculous innovation – Bitcoin’s purpose is to be a digital currency, not an enterprise platform.The eureka moment came in 2013, when the 2nd generation blockchain salesmen said, “We don’t need the openness of a public blockchain; we can build ‘private’ blockchains without the limitations of Bitcoin, and build them better! Let’s separate the blockchain from Bitcoin and make private, permissioned blockchains.”And, soon “the blockchain is going to change the world” meme made selling anything with the word “blockchain” easier. And, the idea of the “blockchain” as a discrete element conveying heretofore not seen revolutionary new efficiency to non-digital money activities was born. Capital started to flow into so-called “use cases” for blockchain technology.However, in their zeal to harness the awesome power of blockchain technology for enterprise users, many newly minted “private” use-case innovations quickly jettisoned the blockchain data structure and the proof-of-work protocol. Because without having the market flattening disruption and network effect of a public blockchain, it’s hard to rationalize the inefficiency of a blockchain database and its associated proof-of-work energy costs.So what’s left?Once you remove the technology that makes Bitcoin what it is, what’s left is a shared or common protocol platform consisting of existing “permissioned” parties inside the walled garden. Yes, getting onto a common platform can add some computational efficiencies between parties, but it’s not a true P2P blockchain experience that changes worlds, levels markets and generates maximum efficiency – the type of disruption people think about w